Risk assessment and options in project finance

Project finance is the arrangement of financial support by a sponsor to undertake a project purely for future cash flow, and solely for the purpose of that supporting that specific project. Many people are involved in the financial success of a project, each with separate risks. Potential sources of funds can come from banks, finance companies, private lenders, and other resources such as equipment vendors. These lenders all have an interest in assessing and minimizing their risks. Weaknesses in risk assessment may include overreliance on past performance, failing to evaluate the current market, failure to assess the larger financial condition of the developer, lack of information on the status of all projects of the developer, and overlending on certain projects. The different types of project finance are; nonrecourse project financing, limited recourse, highly leveraged transactions, off-balance-sheet, and equity and non-equity combinations.
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